Concentration risk in markets on the rise with only a few stocks performing


ET Intelligence Group: The depth of the equity market is shrinking even as the benchmark indices are on an upward swing. The share of the ‘A’ group companies, which represent the popular and liquid stocks, in the BSE’s market capitalisation rose to a record high of 93.7 per cent in the first four months of FY21 compared with an average of 84 per cent in the last two decades, according to the data from the stock exchanges.

The market cap of the ‘A’ group stocks grew by 32 per cent, while that of the ‘B’ group stocks rose by around 16 per cent during the period. The ‘A’ group of companies reported a 9.5 per cent annual increase in their market cap over the past decade, much higher than the 5.2 per cent growth of their ‘B’ group counterparts.

The concentration risk among large caps is rising as a handful of stocks are driving the index momentum. The Nifty gained nearly 47 per cent from the March 23 lows led by Reliance Industries and Infosys. The two stocks accounted for half of the total points added to the Nifty during the period.

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The other 45 Nifty constituents that have earned returns since March 23 contributed just 1-3 per cent each to the index’s gain. In addition, the proportion of the non-delivery trades reached 70 per cent in July 2020, the highest in 12 years, reflecting a sharp rise in speculative trades.





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